Closer Cuba ties could present oil opportunities later

Companies exploring for oil in Cuban waters drilled with the semisubmersible Scarabeo 9, owned by Italy's Saipem and made in China.

Photo: Saipem photo

WASHINGTON - President Barack Obama's decision to normalize relations between the United States and Cuba may lead to more commercial opportunities for Americans within the island nation. But don't expect U.S. oil producers to move swiftly to take advantage of them.

Although geologists believe billions of barrels of crude may be lurking off Cuba's coast in the Gulf of Mexico, oil companies have had a hard time finding that black gold. When Spain's Repsol, Malaysia's Petronas and other oil companies bored exploratory wells in 2012 and 2013, they turned up dry, or insufficient to justify commercial development.

That discourages other oil companies from plumbing Cuba's coast, said Jorge Piñon, an oil industry veteran who directs the Latin America and Caribbean Energy Program at the University of Texas.

The collapse in crude prices and the high cost of doing business in Cuba are factors dissuading deep-water drilling off the country's coast - especially as Mexico auctions competing territory in the Gulf of Mexico.

The Obama administration's actions Wednesday do not explicitly authorize U.S. oil business in Cuba and focus mainly on re-establishing diplomatic relations and permitting more travel between the United States and the island nation.

But in outlining the changes, Obama said that "increased commerce is good for Americans and for Cubans."

Separately, the White House noted in a fact sheet that long-standing policy against Cuba has at times "isolated the United States from regional and international partners (and) constrained our ability to influence outcomes throughout the Western Hemisphere."

Those constraints were on full display during the recent deep-water activity in Cuban waters, when companies drilled with the semisubmersible Scarabeo 9, owned by Italy's Saipem and made in China, because other rigs contained more than 10 percent American-made components, the maximum permitted under the U.S. trade embargo against Cuba.

Some lawmakers and industry experts also warned that the embargo would hamper emergency response to an oil spill or other drilling accident.

Oil spill containment equipment developed after the 2010 Deepwater Horizon disaster, chemical dispersants to break up crude and boom capable of corralling it all likely would be ensnared by the embargo - at least initially - because they are made by U.S. firms.

The Obama administration said it is prepared to invite discussions with the Cuban and Mexican governments over unresolved maritime boundaries in the Gulf.

A recent agreement between the United States and Mexico has unleashed oil development and leasing in territory near the countries' shared Gulf boundary.

Similar discussions with Cuba and Mexico could open up opportunities in parts of the Gulf where ownership is murky.

Although oil producers may have tepid interest in exploring in and around Cuba right now, drilling contractors and oil field services companies may see opportunities there.

Cuba, too, is believed to be interested in honing its own oil production, now about 50,000 barrels a day.